Determinants of consumption-based and production-based carbon emissions

Understanding the determinants of CO2 emissions remains crucial in addressing global climate change. This paper investigates the drivers of CO2 emissions from both consumption and production across 103 nations, emphasizing the roles of renewable energy use, financial market progress, per capita income growth, and population size. Utilizing the method of moments quantile regression and fixed effects model with Driscoll–Kraay standard errors, our findings reveal a reduction in CO2 emissions with increased renewable energy adoption. Furthermore, advancements in financial sectors lead to diminished emissions. However, growth in income and population correlates with elevated CO2 emissions. Numerically, for consumption-based CO2 emission, a 1% increase in renewable energy consumption decreases emissions by 0.2–2.1% in low-emitting countries. Conversely, a 1% increase in renewable energy consumption is associated with between 2.1 and 5.7% in emissions in high-emitting countries. For production-based CO2 emissions, a 1% increase in renewable energy consumption decreases production-based CO2 emissions by 2.2–4.6% in low-emitting countries. Conversely, a 1% increase in renewable energy consumption is associated with between 3.6 and 5.4% in production-based CO2 emissions in high-emitting countries. Also, a 1% increase in financial market development increases CO2 emissions by 0.3–0.4%. The study also finds that per capita GDP and population size have a positive relationship with CO2 emissions. The implications of these results are vital for policymakers aiming to curtail emissions and promote sustainable growth.